The Economic Growth Engine

By Robert Ayres and Benjamin Warr

To purchase the book visit: Footnote at INSEAD at Amazon or ebay

This book is about energy, technological progress and economic growth.

ASIN: 1848441827
Binding: Hardcover

May 2009

Authors: Robert Ayres and Benjamin Warr

Business and indeed most people believe that economies must and will grow for much the same reason they believe in God or in the power of Prayer. It is politically proper. But what justifies the assumption that growth is automatic? The answer is, simply that the easiest assumption about the future, ceteris paribus, is that it will be like the past. Businesses, politicians with this mindset are possibly in for a shock. Several reasons why include:

  • Carbon Constraints
  • Limits of assimilative capacity
  • Competition for scarce resources
  • Technology asymptotes
  • Peak oil
  • Energy Security

The engine of economic growth is a positive feedback loop involving the substitution of energy and machines for human labour. Historically this industrialization process leads to cost reduction, lower prices, increased demand, higher profits, investment, R&D, production experience and – once again – lower cost. Since all economic activities involve transformations of natural resources into products, energy and information services, they are ipso facto inefficient, by the Second Law of thermodynamics. Consequently they consume exergy. Hence the economic system can be regarded as a materials processing system driven by useful energy (exergy). The first stage of the processing sequence is the conversion of crude exergy inputs – such as sunlight, wind, flowing water and fossil fuels – into something called ‘useful work’, the product of exergy inputs times conversion efficiency.

To explain past economic growth, we use the production function approach. With the usual cost-share assumption the output elasticity of each factor of production is its exponent in the familiar Cobb-Douglas function, but to account for actual historical growth it is necessary to include an exogenous time-dependent multiplier (called total factor productivity). In fact, with the cost-share assumption most of past growth is unexplained, and for purposes of forecasting, it is simply assumed. With useful work as a third factor of production in a non-traditional production function (known as LINEX) we can explain historical growth for the USA and Japan since 1900 without the need for an exogenous multiplier. We have extended the approach to forecast US growth in the coming decades and for developing countries.

An interview with Professors Ayres and Warr is available on the INSEAD Knowledge Portal - here and on youtube - here

The resource exergy database compiled but since updated to include Japan and Austria can be accessed - here
A superb review can be found - here

request for reviews...

posted 28 Feb 2010, 10:45 by Benjamin Warr   [ updated 28 Feb 2010, 10:44 ]

If you have enjoyed or found the book useful please provide a short review on Amazon or ebay !!!

The EconomiC Growth Engine cited by Australian House of Representatives

posted 28 Feb 2010, 04:48 by Benjamin Warr   [ updated 28 Feb 2010, 04:46 ]

Sample view of the book

posted 26 Feb 2010, 12:32 by Benjamin Warr   [ updated 26 Feb 2010, 12:31 ]

Visit for a sample view of "The Economic Growth Engine", by Ayres and Warr.

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